XYZ Company leased equipment to West Corporation under a lease agreement that qualifies as a capital lease to West. The cost of the asset is $600,000. The expected economic life of the asset is ten years. The lease term is 5 years. Using the straight-line method, what would West record as annual depreciation?
A)$120,000.
B)$61,000.
C)$60,000.
D)$0.$600,000 / 5 = $120,000

Question

Quizplus · Accepted Answer

The correct answer is A.The annual depreciation expense is calculated by dividing the cost of the asset by the expected economic life of the asset. In this case, the cost of the asset is $600,000 and the expected economic life of the asset is ten years. Therefore, the annual depreciation expense is $600,000 / 10 = $60,000.

XYZ Company Leased Equipment to West Corporation Under a Lease